GAO recommends OPM improve group life insurance disclosures

The Office of Personnel Management must improve the information it provides on the group life insurance program offered to federal employees and develop a more structured process for reviewing the program, according to a Government Accountability Office report released Monday.

GAO reviewed key policy documents of OPM's Federal Employees' Group Life Insurance program, which provides more than 4 million federal employees and annuitants with insurance in the event of their death. The watchdog evaluated FEGLI's structure and operations, OPM's oversight of the program, and the use of retained asset accounts in the FEGLI claims payments. Auditors concluded that OPM provides insufficient material on FEGLI to federal employees, including information on retained asset account operations and protections.

"Because life insurance is an important purchase for those seeking to protect their dependents, prospective buyers need to fully understand the details of the policy they are considering," GAO wrote. "Although OPM provides significant information on its life insurance program, some information that could influence federal employees' decision to buy FEGLI coverage is lacking."

GAO concluded that some key parts of the FEGLI plan were not properly disclosed or explained to federal employees. For example, OPM does not make clear that because FEGLI offers federal employees post-retirement coverage not commonly found in private sector group plans, its premiums might be higher. In addition, OPM does not disclose FEGLI's level-premium and composite rate structure for basic coverage, GAO wrote. FEGLI's level-premiums make insurance rates higher earlier in life and gradually decrease in later years, differing from many private sector plans; employees pay the same average rate under the composite average rate structure, regardless of age or health.

"Because these features can make FEGLI premiums look more expensive than private individual coverage without them, especially to younger and healthier individuals, some employees might conclude that FEGLI coverage is not a beneficial choice and pass up a potentially valuable benefit," the report stated. "Conversely, someone planning to work for the federal government for a short period of time might purchase FEGLI coverage without realizing that the coverage includes a retirement benefit they may not receive and will likely cost more than a group policy without such a benefit."

GAO also found that OPM has omitted important information from its disclosures about the retained asset account settlement option in the FEGLI plan. Beneficiaries can choose either a lump-sum check payment or a retained asset account. Although OPM recently revised some of its disclosures and added more information on the asset accounts, "the disclosures still do not contain some important information," GAO noted.

"While [retained asset accounts] may offer benefits that some beneficiaries appreciate, such as certain flexibilities and a guaranteed interest rate, they also have certain characteristics that need to be fully disclosed," the report stated.

Those characteristics include the new contract between beneficiaries and MetLife that is regulated by states rather than by the federal government and is subject to state-based protections. Beneficiaries might not be aware of the new contract, according to the GAO report.

"The disclosures do not provide the information that beneficiaries need to find the proper regulator should they have questions about their accounts -- a problem that is complicated by the fact that regulators themselves may disagree over which one has jurisdiction," GAO said.

GAO recommended that OPM include more "complete and accurate" information on key FEGLI benefits such as RAAs and post-retirement coverage "to ensure federal employees have all the information they need." Additionally, OPM should "develop and implement a more structured process for comparing FEGLI with private sector group life insurance plans," the report stated.

OPM Director John Berry concurred with all GAO's recommendations. In an Oct. 28 letter, Berry wrote: "We strive for transparency of our program and will provide more information about the level-premium structure, including the composite rates and post retirement coverage, to ensure federal employees have what they need to make an informed decision."